June 2008
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Nick Hurd supports calls to proceed with caution to ensure public policy is focussed on the right types of biofuels and not seen as an agenda for channelling soft subsidies to the agricultural sector.

Mr. Nick Hurd (Ruislip-Northwood) (Con): It is a pleasure to see you in the Chair, Mr. Amess, and to register my support for the report by the Committee, on which I serve. I apologise in advance, because I shall have to leave the Chamber before the end of the debate.

What strikes me about the context of the debate is the degree to which the ground has shifted, and continues to shift very fast indeed. The context, as the Committee Chairman, my hon. Friend the Member for South Suffolk (Mr. Yeo), clearly set out, is the imperative of climate change. In that context, what has changed since Governments started to formulate policy in the area is, as the scientists tell us, that the problem has got bigger and the urgency greater. What has also changed is that the gloss has started to come off the UK’s performance, as it has become clearer that emissions have risen, not fallen, over the past 10 years, and that the transport sector, which we are discussing today, remains absolutely stubborn in terms of our ability to reduce emissions from it.

A further, recent, change is the mood music around biofuels, which some years ago were seen as a win-win opportunity to create benefits for the agricultural sector as well as for the environment. That has unwound dramatically over the past year. Another change is the economic context of the debate: the economic prospects for the UK and the world, and public finances.

The central theme that I shall address is the cost-effectiveness of policy, which underpins my belief that the Government must think much more carefully about biofuels, because they are vulnerable, nowhere more so than in the renewable transport obligation and the renewables obligation. I shall compare the two instruments, because they are structured in similar ways. I am encouraged to make that comparison by the Minister’s remarks in evidence to the Committee when he was pressed on whether he felt that the biofuels policy would be cost-effective. He said he hoped that it would be at least as cost-effective as the policy on wind farms. That filled me with horror, because the facts tell a different story about the cost-effectiveness of the Government’s policy on renewable energy and wind farms. That is relevant because the renewable transport obligation is structured in a similar way and has been lacerated by independent organisations such as the National Audit Office and Ofgem in respect of its cost-effectiveness.

I am afraid that the facts now speak for themselves: we have one of the lowest deployment rates for renewable energy in the European Union. It costs British taxpayers-our constituents-£1.4 billion a year. The cost per tonne of CO2 abated is estimated to run at well over £100, compared with a price in the European carbon markets of about €26. Rather than stimulating next-generation technologies, the policy is shunting public money towards mature and controversial technologies such as onshore wind. It is controversial because of the public’s limited acceptance of the technology and, in terms of overall contribution to greenhouse gas emissions, because of its intermittency and the need to have back-up conventional energy to support it.

The policy was undermined by the Government’s failure to put in place necessary complementary planning process and grid access policies. The problem is worse when one looks at what the European Union encourages us to do, quite rightly, considering the scientific context of the debate. The EU says that we need to go further and faster with renewable energy. Its targets set an enormous challenge for the country, which, as we now know through leaked documents, the Government acknowledge will be very demanding and, presumably, expensive. The Government are reluctant to reform existing policy instruments for fear of unsettling existing investors.

Mr. Robert Goodwill (Scarborough and Whitby) (Con): Is my hon. Friend aware that Denmark, the EU member state with the highest level of wind generation, also has one of the highest levels of CO2 output per capita?

Mr. Hurd: That is an interesting intervention. While we are making comparisons with other countries, my hon. Friend might be interested to know that one town in Germany, Freiburg, deploys more solar power than the whole UK-a powerful statistic that underlines the weakness of existing policy instruments to support renewable energy in the UK.

My point is to preach caution on the renewable transport obligation, because it is structured in a similar way. On the level of subsidies, the Global Subsidies Initiative, in evidence to the Committee, referred us to its report, “Biofuels-At What Cost?”, which found that in 2006, the EU and individual member states subsidised biofuels by about €3.7 billion, taking into account all support mechanisms. The figure is set to rise, given the direction of travel of public policy throughout Europe. The GSI estimates that the cost of biofuels policy per tonne of CO2 abated is 10 to 20 times that of the carbon price in the markets. It cites, for example, the cost of obtaining a reduction of 1 tonne of CO2 equivalent, using ethanol from sugar beet, at between €575 and €800, and at more than €600 for biodiesel made from rape seed.

As with the renewables obligation, public money is focused not on second generation technologies, but on first generation biofuels, with very little differentiation according to their carbon efficiency and integrity-if I may use that expression. As with the renewables obligation, there has been a lack of preparation and groundwork for the implementation of policy. There is a lack of mandatory sustainability standards that mean anything, and a lack of thinking through the consequences, as the Chairman put it, in relation to the impact on food prices and damage to the wider environment.

Unthought-through, badly implemented policy carries a tremendous risk of alienating the public. The mood music has shifted in relation to biofuels, and I am concerned that we run the risk of labelling all biofuels as bad and of alienating the public from the debate, as happened with genetically modified crops and other issues. The report stresses that there is room for the right types of biofuel, and we want public policy to focus on supporting them. I completely support the messages of the report, which are to proceed with caution and, just as important, to preach caution at the EU, where there has been some change in rhetoric from the Commissioners. However laudable the principles and objectives behind the stretch targets that have been set, they none the less raise important issues.

If we are to proceed, let us do so on the basis of robust standards of sustainability-not before we have them. Let us proceed on the basis of much better co-ordinated policy across Europe that focuses public money on technologies that will make a big difference at an acceptable cost. We should not see biofuels as an agenda for channelling soft subsidies to the agricultural sector, because the public will not wear that. Woolly, unthought-through policy carries the danger of alienating the public at a time when it is critical to engage them with climate change. I urge the Government and the Minister to think again.